Southern Company Mounting IPO
Frustrated by its inability to attract investors because they
view it as a stodgy utility, Southern Company last week announced a
makeover in the form of a spin-off and IPO to create a separate
company for most of its non-utility businesses.
Atlanta-based Southern said it will sell 19.9% of the new
company to the public and spin off the rest to shareholders.
Southern, along with other energy companies, has taken a beating
in the stock market as investors have flocked to technology and
dot-com stocks. The company's shares fell 19% last year. Southern
also said it is planning to spin off to holders of Southern Company
common stock the remaining ownership of Southern Energy within 12
months of the initial public offering. The spin-off would be
subject to a number of market and other conditions.
These transactions would create two large stand-alone publicly
traded energy companies: Southern Company, the leading electric
utility in the southeastern United States, and Southern Energy, one
of the largest independent power producers and energy marketers in
Within a few weeks, Southern Energy expects to file a
registration statement with the Securities and Exchange Commission
for the initial public offering of Southern Energy shares. The
offering is expected to take place in late summer or early fall.
"The initial public offering and the subsequent spin-off will
provide a clean separation of our traditional southeastern
operations and our global unregulated energy business," said
Southern CEO A.W. Dahlberg. "The transactions will give the
investment community the opportunity to assign more appropriate
stand-alone valuations to each company and make more focused
investment decisions. The separation also will enable each company
to focus on its core strengths.
Dahlberg said Southern is committed to maintaining its current
annual dividend of $1.34/share and to grow the dividend over time
consistent with earnings expectations. Following the spin-off,
Southern's target will be to grow earnings per share at an average
annual rate of 3 to 5%.
In response to the news, Duff & Phelps Credit Rating Co.
(DCR) placed its ratings of Southern Energy and Southern Energy
North America Generating on Rating Watch-Down. "The rating actions
reflect the elimination of the implicit financial support of
Southern upon completion of the pending IPO and spin-off. The
credit quality of SEI and Generating has to date benefited from
Southern's implied support via significant capital investment as
well as SEI's strategic significance to Southern's growth
initiative." DCR said will undertake a more complete review of SEI
shortly and noted Generating's credit quality would be less
impacted by the transaction than that of SEI.
Southern also reported a 9% increase in first-quarter earnings,
reflecting growth in both its regulated electricity business in the
Southeast and in its Asian business units. Southern reported
earnings of $245 million in the first quarter compared with $224
million during the same period last year. Revenues for first
quarter 2000 were $2.6 billion compared with $2.4 billion in 1999's
Southern's five integrated utilities in the Southeast reported
$176 million in first quarter 2000 net income, compared with $168
million for the same period last year. Higher energy demand, an
increased customer base and a growing wholesale energy supply
business in the Southeast contributed to the increase.
Southern Energy Inc., the subsidiary that includes Southern's
international operations and its competitive U.S. energy supply
business outside the Southeast, reported $101 million in
first-quarter 2000 earnings, compared with $88 million for the same
period last year. Its increased contribution to net income was due
in large part to growing profitability from its Asian business
units. Asian investments contributed $83 million in first-quarter
2000 earnings, compared with $51 million for the same period last
Southern's earnings for the 12 months ending March 31 were $1.3
billion, compared with $959 million for the 12 months ending March
Reviewing operations, Dahlberg said electricity use by retail
customers in Southern's traditional service area in the
southeastern United States increased 4.5% to 33.9 billion
kilowatt-hours the first three months of 2000. In-home electricity
needs were up 3.9% to 9.8 billion kilowatt-hours. Electricity
consumption by commercial customers - offices, stores and other
non-manufacturing firms - rose 7.5% to 10.1 billion kilowatt-hours.
Industrial energy use increased 2.9% to 13.6 billion kilowatt-
hours. Total sales of electricity to Southern's customers in the
Southeast, including sales to other utilities, increased 7.1% to
39.1 billion kilowatt-hours the first three months of 2000.
Joe Fisher, Houston